In Spain, Jobless Find a Refuge Off the Books

By RAPHAEL MINDER

Published: May 18, 2012

SEVILLE, SPAIN -- More than six months ago, a 37-year-old worker here named Juan was laid off from his job delivering and assembling furniture for customers of Ikea, joining the legions of unemployed in Spain. Or so it would seem.

Since then, Juan has continued doing more or less the same work. But instead of doing it on the payroll of Pantoja, a transport subcontractor to Ikea, he hovers around the parking lot of the megastore, luring customers of his own by offering not only to deliver their furniture but also to do ''general work,'' like painting and repairs, all for the bargain price of 40, or $51, a day.

''I will do anything except electricity and plumbing, where I really don't have enough expertise to guarantee a safe and decent job,'' said Juan, who did not want his full name used because he does not declare his income and did not want to run afoul of the tax authorities.

As Spain's recession deepens, more workers like Juan are being shunted into an underground economy that amounts to as much as a fifth of Spain's gross domestic product, according to some estimates, with broad implications as the country tries to revive itself, reform its labor market and keep at bay the kind of wrenching crisis that now threatens to push Greece out of the euro zone.

The happy news is that the size of the underground economy means that more Spaniards are working than it might seem, and that the official unemployment figure of 24.4 percent -- the highest in Europe -- may be overstated by as much as five to nine percentage points, economists say. That has given the Spanish government an important safety valve.

''Without the underground economy, we would be in a situation of probably violent social unrest,'' said Robert Tornabell, a professor and former dean of the Esade business school in Barcelona. ''A lot of people are now staying afloat only thanks to the underground economy, as well as the support of their family network.''

The downside is that fewer workers are being taxed, even as many also collect unemployment and social assistance benefits, placing Spain's government in a tightening pincer of shrinking revenue and expanding outlays. The missing revenue may be as much as 37 billion, economists estimate.

The dynamic is accelerating wage and price deflation, as workers do the same jobs for less, cutting the costs of services but also reducing the amount of money they earn to put back into the economy as well as the government coffers.

Many of these undeclared workers, in fact, compete directly with their former employers, undercutting official rates for services like delivery and electronics repair work by as much as 50 percent. Juan, for instance, now earns about half the salary of 800 a month he once made.

Many of those interviewed said they had no qualms about cheating the Spanish treasury, arguing that avoiding social security and other tax payments is their only way to make ends meet.

''Some people might think that I'm abusing the system, but I really see myself as a victim of a completely faulty economic model,'' said Belen, a 34-year-old graphic designer whose Seville-based company closed down last year. She continues to design logos for a sportswear company and other customers, but off the books, and did not want her full name to be used for fear of the tax authorities.

''Two years ago, I considered myself a successful entrepreneur, with great plans for the future, and the last thing that was on my mind was having to worry about breaking any law,'' Belen said. If anybody is taking advantage of the crisis, she argued, it is ''the customers who know that they can get a logo designed for a fraction of what it used to cost and who don't seem particularly worried about what the designer's own situation might be.''

Michele Boldrin, an economics professor at Washington University in Saint Louis, Missouri, who co-authored a study in May on Spain's underground economy on behalf of Fedea, an economic research group in Madrid, suggested that the government would be wasting its limited resources chasing such individuals, unless their activities were genuinely criminal.

''Much of the informal economy is nothing but the normal reaction of low-skilled people who have no alternative once they lose their job,'' he said. ''What the government should focus on is reforming the formal economy to make it more efficient and competitive rather than focus on pursuing such people.''

Since taking office last December, the conservative government of Prime Minister Mariano Rajoy has tried to make the labor market more flexible by pushing a measure through Parliament that, for one thing, weakens collective bargaining agreements. But Spain's labor force remains precariously bifurcated.

On the one hand, many workers, especially in the public sector, have virtually ironclad long-term contracts. On the other, much of the labor force -- more than in other European countries -- is employed under temporary contracts with few protections. During bumpy times like these, they have been the shock absorber of the economy, exacerbating Spain's high unemployment rate.